FTAs and International Trade - Chapter 3

BME

International trade

the exchange of capital, goods and services across national borders

Grants

Provides financial assistance to help encourage export development to other countries

Export market development grant

Provides substantial cash rebates on overseas marketing expenditure

• Administered by Austrade

• Provides reimbursement of up to 50% on eligible marketing expenditure above $5000

Eligibility

• Australian resident entities with a total annual income of less than $50 million

• Spent at least $15000 on overseas marketing expenditure

• Provides up to 8 grants for each eligible applicant

Taxation - Tradex Scheme

Upfront exemption on customs duty and GST on eligible imported goods intended for export

Eligibility: 

• Goods must be exported in the same condition as imported 

• Goods must be exported within 12 months of importation 

• Goods can be incorporated into other goods intended for export 

Taxation - Research Development Tax Incentive (RDTI)

Offsets for expenditure on research and development 

• given by the Australian Taxation Office 

Eligibility: 

• Must be a company in Australia liable to pay income tax

• Have eligible R&D expenditure greater than $20,000

• The company must conduct at least one activity that meets the definition of a core R&D activity 

Others - Export Finance Australia

Provides financial and insurance support to help Australian exporters overcome financial barriers.

• Australia’s export credit agency

• Take advantage of commercial export and overseas investment opportunities

• Works directly with exporters and their banks to provide loans, guarantees, bonds and insurance products that can be tailored to meet the exporters needs

Free Trade Agreements 

International treaty that removes barriers to trade and facilitates stronger trade and commercial ties and increased economic integration between participating countries. FTAs can cover entire regions with multiple participants or just link 2 economies 

Role of FTAs

• Aid in the development of a country’s gross domestic product

• Allow for the trade between countries to operate more freely as well as removing trade barriers for international businesses - aims to create more jobs and tax revenue locally

• Makes it easier, cheaper and more efficient for local businesses to trade internationally by reducing taxes such as import and export taxes

• Aims to be mutually beneficial to all countries involved

AANZFTA features and benefits 1

Extensive tariff reduction and elimination commitments. 90-100% of tariff reduction on 96% of Australian exports

Reduce the price of the export product, which might increase sales leading to increase profit and market share

AANZFTA features and benefits 2

Regional rules of origin provide new opportunities for Australian exporters to tap into the international supply chains in the regions

Allows Australian businesses to obtain supplies from member countries at a significantly lower price

AANZFTA features and benefits 3

Promotes greater certainty for Australian service suppliers and investors through certain legal protection for investment in ASEAN territories

Assists in resolving foreign investment dispute by referring disputes to the international arbitration

AANZFTA features and benefits 4

Provides a platform for ongoing economic engagement with ASEAN

Improved access and certainty in ASEAN markets, particularly in Philipines and Vietnam where Australia does not have bilateral FTAs.

ANCERTA features and benefits 1

All tariffs and quantitative import or export restrictions on trade in goods originating in the Free Trade Area are prohibited under ANCERTA

Advantage for exporters, increases available market at a cheaper cost. Advantage for import businesses as cost of imported products is reduced.

ANCERTA features and benefits 2

Contains measures to minimise market distortions in trade in goods

Fair trade with NZ because prices are not artificially distorted by government support. Able to compete on equal footing with NZ products

ANCERTA features and benefits 3 

The harmonisation of trans-tasman food standards through the australia new zealand food authority agreement (ANZFA) of 1995 

ANCERTA features and benefits 4

Mutual recognition of good and services removes technical barriers to trade and impediments to the movement of skilled personnel between jurisdictions without the need for complete harmonisation of standards and professional qualifications

Increases the mobility of the workforce. australian businesses have a larger pool of labour to choose from and may be able to source cheaper labour from NZ

Benefits of FTAs (SEE)

Specialization

Employment

Economic growth

Specialization

Specialize in those commodities in which they have a comparative advantage.

• take advantage of efficiencies generated from economies of scale and increased output

• International trade increases the size of a firms market, resulting in lower average costs and increased productivity and increased production

Employment 

• Increase employment opportunities in exporting industries 

• Jobs created in Australia, especially in manufacturing and service industries 

• Flow of expert labour - help country improve in areas of need 

Economic growth

• Stimulate economic growth

• reducing unemployment

• increasing the countries gross domestic product

Challenges of FTAs (SIDE)

• Structural unemployment

• Increased domestic economic instability

• Domestic industries

• Environmental issues

Structural unemployment 

Skill set does not match job requirement

• Occurs in the short term 

• Difficult for these workers to find employment in growth industries 

• Government assistance such as training is needed 

Increased domestic economic instability

• Dependent on global markets

• Vulnerable to downturns in the economies of our trading partners

Domestic industries

• more competition in australia by foreign owned businesses

• developing or new industries, difficult to becom established in a competitive environment with no short term policies by governments

• difficult to develop economies of scale

• affects infant industries

Environmental issues

• free trade can lead to pollution and other environmental problems as

• companies fail to include these costs in the price of goods

• difficult to compete with businesses with weaker environmental legislation

• low cost in containing pollution